Market Overview

Tickers

Articles

Keywords

Warren Buffett Wants a Minimum Tax on the Wealthy

In a gently scathing New York Times op-ed, Warren Buffett argues that it would be absurd to believe raising the capital gains tax rate would discourage the super wealthy in the U.S. from investing their money.

In the 1950s, when the capital gains rate increased from 25 percent to 27.5 percent, Buffett recalls no one mentioning the increased rate as a reason to avoid a solid investment opportunity.

And in fact it seems even more absurd now, sixty years later, when the Forbes 400 – the wealthiest individuals in America – made $1.7 trillion this year compared to just $300 billion total in 1992. That can't all be from inflation.

“[We're] leaving the middle class in the dust,” Buffett contends, even while many of the super wealthy remain unrelentingly resistant to paying a higher tax rate.

The 400 highest incomes in the United States, not a carbon-copy of the Forbes 400 but no less of an indicator, paid a tax rate of 26.4 percent of adjusted gross income twenty years ago. In 2009, the most recent year from which all relevant data is available, that percentage was only 19.9 percent. Half of those individuals paid less than 20 percent in payroll and income taxes, and almost a quarter of them paid less than 15 percent. A few even paid nothing.

Buffett's solution? An elimination of the Bush tax cuts on the wealthy, and initiating a cut-off for the minimum tax on incomes around $500,000, instead of the $250,000 cut-off put forth by President Barack Obama. In addition, Buffett proposes a minimum tax of about 30 percent on high incomes between $1 and $10 million, and 35 percent for anything greater. Buffett goes on to say that a minimum tax is the best way to combat lobbyists and others who would fight against raising taxes on the super wealthy.

The contention is that a higher rate boosts both GDP and employment rates; and Buffett believes that the cries from the wealthy of having their wings clipped ignores the extraordinary gains they make from the market irrespective of how much they are taxed.

Something is certainly needed to keep government revenue closer to the amount spent. Buffett envisions the government taking in 18.5 percent of GDP in revenue and spending 21 percent, which is still an unbalanced equation but significantly better than the current reality of 15.5 percent in revenue and 22.4 percent in spending.

Buffett admits that more tax reform is needed, particularly the kinds of loophole closures that allow some wealthy earners to avoid taxes altogether. But the minimum tax is a good place to start, because the super wealthy are certainly not going to be content with earning the meager one-quarter of one percent that their money would otherwise earn sitting in a savings account. The super wealthy are going to keep investing, and higher taxes are not going to stop them.